Lipitor sales: Why Ranbaxy's Rs 2,983 cr loss won't worry investors

Despite a late start and a series of controversies, Ranbaxy has, within a span of three months, managed to wrest the largest share in the generic market space of the largest selling pharmaceutical brand in the world.

This is why despite reporting a Rs 2,983 crore loss in the December quarter after taking a $500 million charge to settle a legal dispute in the US, the stock is still holding up.

Lipitor, the cholesterol-lowering drug (chemical name: atorvastatin), was the largest selling drug in the world that went off-patent after the expiry of Pfizer’s licence in December 2011. In order to prevent Ranbaxy from gaining market share, Pfizer had selected Watson Pharma to sell its generic version of the product a week before the product was going off-patent.

In spite of the odds, Ranabxy has managed to overtake both Pfizer and Watson Pharma in market share. As the chart below shows, Ranbaxy managed to overtake Watson Pharma’s sales within a month, while it took them two months to overtake the patent holder Pfizer.

Ranbaxy has been given 180-day exclusivity to sell the generic version of Lipitor. In the December quarter, the company sold around $300 million worth of the product, though price erosion has been to the extent of 65 percent.

Ranbaxy has three more months to exploit the exclusivity period, which analysts believe can fetch the company good returns if one extrapolates the numbers. For the October to December period, the company’s sales include only one month of Lipitor sales of $300 million. During this period, the market share of Ranbaxy was on an average 20 percent. In January the average market share was around 37 percent while in February it has been nearly 42 percent.

Ranbaxy is thus expected to reap the maximum benefit in the March and June quarters. Even after the exclusivity period, the company is expected to retain its top ranking, though market share and realisations will come down. Post the 180-day exclusivity period, four companies are expected to tap the market, which will result in a further price erosion to the extent of 90 percent of the original price.

Ranbaxy has already provided for most of the cost related to Lipitor, which is why profit too is expected to shoot up over the next two quarters.

However, there is little traction in the core business of the company. Ranbaxy posted sales of $2.1 billion for 2011 and has given a guidance of $2.2 billion, which signals a flat growth.

It is only because of the sharp growth expected by the company from Lipitor that the stock has not reacted much to the weak guidance. Ranbaxy trades at Rs 435, down 1.2 percent after announcement of its results.